Langton Capital – 2018-11-26 – Restaurant Group, CAKE, Hotel Chocolat, Brexit & other:
Restaurant Group, CAKE, Hotel Chocolat, Brexit & other:
A DAY IN THE LIFE:
So, are you like me, do you tell every website that your birthday is 1 Jan or 25 December?
Because it seems like a sensible thing to do, what with ID thieves only really needing your birthday and your postcode to cause you all sorts of problems.
However, there are some unintended consequences, even for this modest act in that your phone will start pinging with birthday congratulations just as you’re preparing to light the fireworks or pop the cork on a bottle of fizz on 31 Dec or disturb you as you’re getting the kids (or yourself) to bed on Christmas Eve.
But that’s a small price to pay and, unless there’s a clear and present danger that I’m foregoing a gift, I think I’ll carry on. On to the news:
RESTAURANT GROUP / WAGAMAMA:
• Vote on the deal to take place Wednesday. Shareholders mixed, Co says it will press ahead. Wants the Rights money (and probably the dividend cut) even if the deal does not go ahead.
• Sunday telegraph says the Wagamama deal is ‘not to everyone’s taste’.
• Sunday Times suggests ‘a shareholder rebellion at Frankie & Benny’s owner The Restaurant Group has put its £559m takeover of Wagamama on a knife edge.’
• Pro shareholders include the management (de minimis), Schroders, JO Hambro and Royal London. Anti shareholders include Threadneedle, Grizzlyrock, Vivaldi and ‘another major shareholder’ that declined to be named.
• Times quotes a ‘major shareholder’ as suggesting the Rights Issu is important as ‘the company needs to recapitalise because it’s going through serious financial difficulties.’ The turnaround in its existing business (ex the concessions and pubs business) is taking some time to execute.
• S Times quotes investor as saying the deal will be what CEO Andy McCue’s ‘reputation lives or dies on.’ It quotes a casual dining operator as saying that the Waga price is too high adding ‘I would have accepted half that price.”
• City AM has suggested ‘a second major investor will oppose the Restaurant Group’s £600m acquisition of Wagamama on the grounds of price.’
• Times suggests the Waga acquisition could be a distraction rather than a cure for the group’s problems.
• Langton comment: If say 70% of the register votes on Wednesday then only 35% will be needed to tip the Rights Issue and acquisition one way or the other.
• If a ‘second major shareholder’ votes against, then stated voting intentions stand at around 20% each and the vote may come down to whichever side feels more motivated to vote.
• Objectors might normally find themselves in this position, but the company will be working its shareholders hard in order to get pro-voters to register and vote.
• Hence the vote could go other way, but we would make a few observations and pose a question:
o Winning a vote is not the same as doing a good deal. See Bridge over the River Kwai, Mrs May in Brussels etc. Wagamama has ‘had its wedding dress on’ for some time and the proposed price is the highest per restaurant ever paid in the UK.
o Goldman has been selling the dream. The purchaser of Wagamama was always going to find themselves in opposition to GS and that is not usually a comfortable position in which to find oneself.
o Winning a vote is only a step in the road. Deal-making is perhaps overrated. Miracle economics can’t always be relied on. Execution, on the other hand, is often underrated – but it will remain key.
o If the deal fails, what is Plan B? Do the executive directors resign? Who would replace them and how / when will the existing estate be brought back into growth?
• Patisserie Holdings’ main trading subsidiary Stonebeach Ltd reported on Friday that Paul May (former CEO of Patisserie Holdings) and Christopher Marsh (former CFO) ceased to be directors of the subsidiary on 16 Nov and 26 Oct respectively.
• On the Beach chairman and Patisserie Holdings director Lee Ginsberg is to step down from his role in the former company to ‘focus on other time commitments’. Mr Ginsberg will remain on the OTB beach. Patisserie Holdings chairman Luke Johnson has said that he will also focus on his role at CAKE though he remains a director of around 30 other companies.
• Bloomberg suggests new CEO Stephen Francis, who has been presented as a turnaround expert, ‘presided over losses that dragged down the performance of his previous employer and led to his departure, according to a filing released Friday.’ Bloomberg quotes Tulip owner Danish Crown as saying that the performance of the UK division this year was ‘very disappointing’. It adds that this disappointment led to management changes and says that ‘Francis’s departure was a part of the shake-up.’
• Although there must be a great deal going on below the surface, silence has once again descended on the group. The shares, which had initially been thought due to relist in mid-October, remain suspended.
PUBS & RESTAURANTS:
• Hotel Chocolat has announced the opening of the first Hotel Chocolat store in Japan, at the Aeon Lake Town shopping mall in Tokyo, the largest mall in the country. CEO Angus Thirlwell says ‘the reaction to Hotel Chocolat in Japan on our first day of trading last week was hugely encouraging.’ Mr Thirlwell adds ‘we look forward to unfolding the brand further here.’
• Research from HIM has found that food on the go operators, coffee shops and bakeries are taking market share from convenience stores in food and drink on the go.
• CAMRA has asked Ei Group to not sell its pubs to developers. Reports have suggested Ei group is set to sell its commercial property branch of its business.
• The crazy-golf business, Competitive Socialising, has received c£28m in funding from the owners of the LA Dodgers baseball team, Eldridge Industries.
• Junk food adverts are to banned on the entire Transport for London networks, in a bid to combat childhood obesity.
• MEATliquor has stated it will offer £20,000 finders fee to anyone who can find a nearby replacement to its Marylerbone site, which is set to close in February to make way for a hotel.
• Loungers has reported that LfL sales rose 6% in the year to end-April.
• Asda, Morrisons and Sainsbury’s have reduced their petrol prices as wholesale fuel prices continue to fall.
• The Morning Advertiser summarises trade leaders’ response to the announcement that the political declaration on the future relationship of the UK and EU has been agreed. Union Unite said its Service Industries sector hoped in Brexit there would be a potential for workers’ pay and conditions to improve. UKHospitality chief executive Kate Nicholls welcomed the news and said the likelihood of a deal was reassuring for businesses.
• Leon plans to open its first Irish site in Dundrum Town Centre, Dublin at the end of 2019. The group signed a franchise partnership with a team of entrepreneurs and hospitality experts from Cibus Concepts Ltd
• UKHospitality CEO Kate Nicholls responded to the Mayor of London’s announcement regarding food and drink advertising in the capital by saying ‘Hospitality operators share the public’s support for calorie, salt and sugar reduction and promoting healthy attitudes to food and drink’.
• EIG has bought back 120k odd shares at around 188p.
HOLIDAYS & LEISURE TRAVEL
• TUI plans to add 12 new TUI Sensimar hotels to its international portfolio over the next financial year, with an additional three TUI Family Life hotels in FY19. TUI Sensatori Barut Fethiye Resort in Turkey will be extended with the construction of a new building next to the hotel.
• Unsecured creditors are unlikely to get anything from Monarch with preferential creditors set to gain some of the money owed to them, according to administrators KPMG. Preferential creditors, Monarch’s employees, will be paid by December 31. The amount of preferential claims is estimated at £2.7 million.
• Dabbers Social Bingo is set to open in East London in December, claiming to be the UK’s first modern bingo site.
FINANCE & ECONOMICS:
• Nationwide has warned that the stock of property available for sale is ‘pretty much at an all time low.’
• Sterling down vs dollar at $1.2819 but up vs Euro at €1.1294
• Oil down at $60.15.
• UK 10yr gilt yield down 4bps at 1.38%.
• On track for deal agreement with EU (now happened), lose vote in Commons (say 11 Dec), tweak the terms, wins through in Commons (pre-Xmas), DUP withdraws support, widespread disillusion, government lose Vote of Confidence (mid-2019), general election, Labour largest party & free to act without any restraint from Brussels. Thereafter exchange controls, wealth tax, VAT on school fees, re-nationalisation, rising direct & indirect taxes, Sterling crisis, IMF involved, 1976, three-day week etc.
o Deal signed in Brussels. PM appeals to the nation. Deal worse than staying in the EU say main Brexit supporters.
o Dominic (rat,-ship, sinking) Raab says he’d rather stay in EU than accept the deal he helped negotiate. Thanks Dom.
o NIESR says the exit package will leave UK £100bn a year worse off by 2030. This is equivalent to around £3,000 plus per annum per family. It says the shrinkage ‘is the equivalent of losing the economic output of Wales or the City of London.’ Michael Gove has said that he is sick of experts.
o NIESR says the transition followed by a free trade agreement will lead to a large fall in trade and investment. It says that trade with the EU will fall by almost a half.
o NIESR says a no-deal exit will cost even more & leave the UK some £140bn per year worse off.
o The government is due to release Treasury forecasts prior to the ‘meaningful vote’ (around 11 or 12 December).
o View from the USA – NBC says ‘the U.K. — a nation which in living memory was administering the largest empire in the history of the world — is at present a country where the deluded are fighting with those in denial. It could all end very badly indeed.’
PRIOR DAY LATER TWEETS:
• Later tweets: Fuller’s: LfL sales increases of 4% plus were insufficient to hold profits. Says it has front-loaded some costs
• Bad behaviour. See email on fraud, irregularities etc. Power of incentives. WYSIATI. Can’t con an honest man, etc.
• Living in a bubble (or behind a wall of money) doesn’t promote breadth of vision. Helps to explain some ‘bad’ or at least irregular behaviour
• ‘Confirmatory bias’ convinces manager that he is genius, shock. Reality checks valuable. Working only with laccys won’t help
• Re bad behaviour. Charlie Munger says ‘never, ever, think about something else when you should be thinking about the power of incentives.’
• On trade operators, quite understandably, pointing out year to Sep 18 (Beast, W Cup, Sunshine) was abnormal. May unwind this year
• Brexit. All agreed except the detail. What happened to ‘nothing is agreed until it’s all agreed…’?
• Lee Ginsberg, NED at CAKE, leaves OTB to ‘focus on other commitments’. May exited RTN, Luke still at 30+ inc Arden, Brighton, Elegant Hotels
START THE DAY WITH A SONG:
Last Friday’s song was Living for the Weekend by Hard Fi. Today who sang:
And you know that she’s half-crazy but that’s why you want to be there,
And she feeds you tea and oranges that come all the way from China
And just when you mean to tell her that you have no love to give her
RETAIL NEWS WITH NICK BUBB:
• Hotel Chocolat: The big Lakeside shopping centre (owned by Intu) has been in the news, but the first Hotel Chocolat store in Japan has just opened at the Lake Town shopping mall in Tokyo, the largest mall in Japan. Angus Thirlwell, the co-founder and CEO of Hotel Chocolat, says: “The reaction to Hotel Chocolat in Japan on our first day of trading last week was hugely encouraging. Customer engagement, media attention and sales performance were all well ahead of expectations”.
• Saturday Press and News: There was plenty of coverage of “Black Friday” on the News pages of Saturday’s papers, eg “Black Friday Crash” in the Daily Mail (highlighting that the John Lewis website crashed at times) and “Black Friday gives little comfort to the High Street” in the Guardian. The big FT article (“Black Friday brings relief to battered retailers”) was mainly about the US, apart from a section about the cost of Online returns that noted the push for “Boris”: “buy online, return in store” (!). Otherwise the Retail cupboard was a bit bare, although the former WH Smith boss Kate Swann was the “Big Shot of the Week” in the Daily Mail (“the best regarded British boss you may never have even heard of”).
• Sunday Press and News: Relatively thin pickings in the Sunday papers, but the Sunday Times had an interesting scoop: that “Mad Mike” Ashley has said he will close all the Sports Direct group shops in Intu shopping centres, in retaliation for Intu’s refusal to bow to his demands for lower rents on the 4 House of Fraserstores in their portfolio. The Sunday Times also flagged that Monsoon Accessorize is the latest struggling fashion retailer to have its supplier credit insurance terms cut. And the Sunday Times revealed that Waitrose has quietly scaled back its price-matching pledge on grocery brands against Tesco, as a preamble to a major feature article about the pressure that the growth of Aldi and Lidl is putting on expensive supermarkets (“My other supermarket is a Lidl”), highlighting the price gap on Christmas staples between Lidl and Waitrose, as well as the risk that the customers
• News Flow This Week: After “Black Friday”, the discounting promotional hype continues today with “Cyber Monday”, but there is plenty of company news to keep us busy, kicking off tomorrow with the QUIZ interims, the Pets at Home interims and the Topps Tiles finals. Thursday brings the Motorpoint interims, the ASOS AGM and the Hotel Chocolat AGM. Then Friday brings the DFS AGM, the monthly GFK Consumer Confidence index and the much revised “PUSU” deadline for the John Whittaker consortium over its bid for Intu Properties.